The burden is on the assessee to establish the identity of the investor and the genuineness of the transaction when invoking Section 68 of the Income Tax Act.

S. Ravindra Bhat, J.

1. The assessee in this appeal questions the decision of the Income Tax Appellate Tribunal (ITAT) by which the Revenue’s appeal was allowed for the assessment year (AY) 1996-97.

2. The substantial question of law framed for consideration by this Court is as follows:

“Did the Tribunal fall into an error in holding that the assessee had not discharged the initial onus cast upon it under Section 68 and furnishing satisfactory explanation in respect of the total amount of Rs.29,70,900/- in the facts and circumstances of the case?”

3. The assessee company was engaged in manufacturing of cotton buds and cotton balls. Since its business was not running profitably, it took up the business of consultancy in real estate development. During the concerned assessment year, the Assessing Officer (AO) noted that the assessee had received two amounts from two Non-Resident Indians (NRIs). The first was from Vinay Kumar Kedia (an amount of Rs.14,97,400/-), and the second was from Sh. Narottam Singh (an amount of Rs.14,73,410/-). During the course of enquiry, the assessee said that these amounts were received for purchase of land on behalf of these NRIs. The AO observed that the foreign exchange remittances and certificates disclosed that the amounts had not been sent by two persons but by two companies, namely M/s. Thailand and General Co. Ltd. and M/s. Preet Trading Co. Ltd. of Thailand. He, therefore, queried that since the remittance were received from two companies, how the credit entries could be made in the books of accounts of the assessee in the name of NRIs remained unexplained. Since nothing was forthcoming, the AO treated it as unexplained and assessed/brought them to tax under Section 68 of the Act. The CIT, upon appeal, considered the issue in the light of the evidence pertaining to the sale deed through which these lands were purchased in the names of Sh. Vinay Kumar Kedia and Sh. Narottam Singh. The CIT accordingly deleted the additions. The Revenue’s appeal to the Tribunal was successful. On 20.08.2004, the Tribunal noticed that the assessee had produced substantial evidence to prove the creditworthiness of the creditors. Yet, the main question remained unanswered even in the order of the CIT. The AO’s query was that the foreign remittance to the assessee was made by two companies but the assessee had credited the remitted amounts in favour of Sh. Vinay Kumar Kedia and Sh. Narottam Singh. The AO’s doubt led to the query as to how these credit entries could be made in the name of two individuals when the remittance were received from two companies. This query remained unanswered by the assessee. The Tribunal took note of the sale deeds placed on record to establish the genuineness of the transaction. However, since the AO had doubted the basis of the credit entries which had not been cleared before the Tribunal, the matter was remitted for consideration to the AO again.

4. This time round, the AO, in the order, noted the Tribunal’s direction. The AO observed that as far as the production of those two individuals was concerned, the assessee’s explanation was that since they lived abroad, it was not possible to comply with such a requirement. The assessee was also unable to collect any evidence or show whether the two companies which had remitted the amounts were substantially owned or any substantial shareholding in them was owned by the said two individuals. The assessee again repeated before the AO the assertion that it had purchased land on behalf of the two persons and they were duly registered in their names. The AO rejected the assessee’s explanations and confirmed the addition yet again.

5. The assessee’s appeal was successful. The order of the appellate Commissioner allowing the assessee’s claim was premised on the affidavits of one Ms. Rosna Singjirakul as well as that of Sh. Vinay Kumar Kedia and Sh. Narottam Singh, the two purchasers. The CIT was satisfied as to the link in the chain of transact